Annuities could be helpful for people who want a steady flow of income for the rest of their lives. Even though most annuities have a death benefit, an annuity is almost the opposite of a life insurance policy. An annuity protects you financially if you die before your income runs out.
Buying an annuity is not always an easy choice. Before deciding whether or not to buy annuity policies, buyers should think about the following:
Look at all of your other savings plans, pensions, and retirement funds to see if you need an annuity and if the one you're thinking about is the right one for you based on your age, financial situation, investment goal, and willingness to take on risk. Is it possible that you could live longer than your money? Will you keep the annuity long enough so that the fees don't eat up your investment?
Decide if you want your investment to be steady and fixed or if you want it to change over time. Variable products give you a chance to make money when the market is doing well, but they also carry more risk when the market is going down.
Be careful when exchanging a variable product for another that is not variable. For example, switching from a variable annuity to a fixed or equity-indexed one may result in a "surrender charge" and higher annual fees, as well as a new period of time during which you can't take money out of your account without paying large surrender charges. Always look at the schedule of fees and surrender charges. They may be higher on the variable annuity with the bonus credit than on the annuity you already have.
Make sure the company you're thinking of buying an annuity from is a reputable one. The Insurance Marketplace Standards Association logo is a good place to start. This logo can only be used by companies that have gone through a thorough outside review and shown that they follow IMSA's strict Principles and Code of Ethical Market Conduct. Visit www.IMSAethics.org to find out more about the company and to see if it is on the list.
Make sure that the company selling the annuity is financially stable. Standard & Poor's Insurance Rating Services (www.standardandpoors.com), Moody's Investor Services Inc. (www.moodys.com), Fitch Ratings Inc. (www.fitchratings.com), and A.M. Best Co. are some of the independent services that rate the financial strength of insurance companies (www.ambest.com).
Check with your state's insurance department to make sure the company you're thinking of buying from is licenced to do business in your state.
Keep in mind that an annuity is a legal document. Before you buy an annuity, make sure you read the contract carefully and that your agent has answered all of your questions fully. - NU